A bus driver looks at a shattered window after the attack near Eilat in Israel on Thursday. (Reuters)

Jerusalem, Aug. 18 (AP): Squads of gunmen armed with heavy weapons and explosives crossed into southern Israel today and attacked buses, cars and an army patrol in one of the boldest attacks on the Jewish state in years, officials said.

Israel said the Palestinian assailants from Hamas-ruled Gaza killed seven people after crossing through Egypts Sinai Peninsula.

Exchanges of gunfire across the Israel-Egypt border continued late into the evening, but it was not clear whether assailants were still at large within Israeli territory, deputy defence minister Matan Vilnai said.

The series of attacks were the boldest against the Jewish state in years and stoked concerns that Palestinian militants might be exploiting instability in Egypt. Within hours, Israeli aircraft bombed southern Gaza in retaliation, and Gaza medical official Adham Salmia said five militants and one child were killed in a strike on a private home.

The attacks on Israelis began at midday. They came close together in time and location and appeared coordinated. Israeli security forces said they tracked down some of the assailants and killed seven in a gunbattle, military spokesman Lt Col Avital Leibovich said. Defence officials said three of the bodies were booby-trapped.

Israel said the gunmen started out from Gaza and made their way through Sinai, which borders both Israel and Gaza. Egypt and Hamas denied any involvement.

The incident underscores the weak Egyptian hold on Sinai and the broadening of the activities of terrorists, Israeli defence minister Ehud Barak said in a statement. It was the deadliest assault in Israel since a Palestinian gunman entered a religious seminary in Jerusalem in March 2008 and killed eight people.

Security in Sinai has deteriorated sharply since February, when Hosni Mubarak was ousted in a popular uprising. Many Israelis saw Mubarak as a source of stability with shared interests.